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As part of its efforts to tackle greenhouse gas emissions, the EU in 2009 adopted rules that require carmakers to cut average car emissions to 130 grams of CO2 per km by 2015.

Carmakers are on course to meet that.

Road transport is one of the few sectors with rapidly rising emissions. Between 1990 and 2008, emissions from the sector increased by 26 percent, according to figures from the Commission, the bloc's executive arm.

An impact assessment on the proposed new law, also seen by Reuters, says a roughly 25 percent reduction in car and van fuel consumption would save an estimated 25 billion euros (20 billion pounds) per year.

It also says estimated fuel savings from implementing the 2020 target would more than compensate for the expected cost of compliance.

For the average motorist, fuel savings of around 500 euros per year would stem from the 95 gram target in 2020, based on a driving distance of 20,000 km per year and a fuel cost of 1.4 euros per litre.

The Commission proposal, once made public, will have to go through a long EU legislative process before it can take effect.

The Commission refuses to comment on proposals before they are officially made public.

CAMPAIGNERS WANT EVEN MORE

Consumer groups and environmental campaigners are keen for tighter standards and some want the Commission to be more daring.

"But drivers have been short-changed. The EU can and must go further by tightening the 2020 target to 80g CO2/km and introducing a target for 2025."

Some in the car industry have called for more flexibility on environmental standards to help ease costs for a sector struggling with overcapacity, an economic downturn and tough competition from beyond Europe.

CARS 21, a policy group that gathers ministers from EU member states, auto executives, EU commissioners and trade union representatives, met on Wednesday and adopted a report on its vision to revive the industry.

Sergio Marchionne, president of the car industry association ACEA and CEO of Fiat, said it was essential to implement the findings of the report and particularly to ensure a level playing field in terms of international trade.

The industry says that following an EU free trade agreement with South Korea that began to take effect in July 2011, 150,000 more South Korean cars were on European roads.

Marchionne said trade negotiations with Japan had been discussed at Wednesday's CARS 21 meeting.

"It's an issue that is first and foremost on our minds," he said. "We need to be very careful before we open ourselves up to any other exposure when the economic underpinning is as weak as it is."